US blacklists 5 Chinese tech firms

The United States is blacklisting five Chinese organizations involved in supercomputing with military-related applications, citing national security as justification for denying its Asian geopolitical rival access to critical U.S. technology.

The move by the U.S. Commerce Department could complicate talks next week between President Donald Trump and his Chinese counterpart, Xi Jinping, aimed at de-escalating a trade dispute between the world’s two biggest economies.

The five blacklisted organizations placed on the so-called Entity List includes supercomputer maker Sugon, which is heavily dependent on U.S. suppliers, including chipmakers Intel, Nvidia and Advanced Micro Devices.

The other four are the Wuxi Jiangnan Institute of Computing Technology and three Sugon affiliates. The Commerce Department called their activities “contrary to the national security and foreign policy interests of the United States.”

The blacklist effectively bars U.S. firms from selling technology to the Chinese organizations without government approval. Last month, Commerce last month added telecommunications giant Huawei to it, heightening tensions with Beijing.

“Adding more Chinese companies to the U.S. bad guys list may be seen as a way to ramp up the pressure on China,” said Amanda DeBusk, a partner at Dechert LLP and the former Commerce Department assistant secretary for export enforcement. “However, the Chinese may see this as ill-timed bullying. They cannot be seen as making concessions to the United States, so this may have the effect of hurting any chances for trade agreement.”

Sugon and the Wuxi Jiangnan Institute, which the U.S. said is owned by a Chinese army research institute, are involved in China’s push to develop next-generation exascale high-performance computing to assist with military modernization. The technology involved supports such military-related tasks as



running nuclear simulations, calculating missile trajectories and hypersonic algorithms, said Paul Triolo, technology analyst with the global risk-assessing Eurasia Group.

“This is all about the race to exascale computing, which China has designated as a major priority,” he said, adding that companies such as Sugon have received major government backing.

Of particular concern to China hawks in the Trump administration, Mr. Triolo added, is Sugon’s move to develop a next-generation processor of its own. It licensed one generation of AMD technology as part of a 2016 joint venture in which a Sugon subsidiary has an ownership stake.

An AMD spokesperson said the company was reviewing the order to determine next steps related to their joint ventures.

In recent years, the U.S. and Chinese companies have been alternating as leading producers of the world’s fastest supercomputers. Sugon had 63 of the top 500 in the most recent rankings .

This is not the first time the U.S. has placed on the Entity List a Chinese organization involved in supercomputer development with military uses. In 2015 it added China’s National University of Defense Technology to the Entity List.

“The U.S. is gradually squeezing off access to US technology for major elements of China’s next generation supercomputing,” said Triolo. The long-running campaign isn’t directly related to Trump’s current trade war with China.

Trump has imposed 25% tariffs on $250 billion in Chinese imports and is preparing to target another $300 billion, extending the import taxes to virtually everything China ships to the United States. China has retaliated with tariffs on U.S. products.

Talks to resolve the dispute broke off last month. But Trump and Xi are scheduled to meet next week at the Group of 20 summit in Osaka, Japan, to get the negotiations back on track.